| Disposing
of a Business - Some Tax Considerations
Most small business owners,
from time to time, consider the possibility of selling their business.
The tax effects of some of the many ways that your business sale could
be structured, are as follows:
If you are looking for an
all cash deal, and are willing to trade an immediate tax bill to avoid
future uncertainties, your biggest problem may be finding a buyer with
the cash you want. To help things along, you might have to consider an
installment sale. In that case, tax often will not be due until your receive
the payments. However, you have to be careful to get enough up-front cash
to take care of "recapture taxes" that may be due in the year of sale no
matter how little cash you receive from the buyer that year.
If you sell the assets of
your business, you and the seller will have to come to terms on how the
total purchase price is to be allocated among them. Since your interests
will not necessarily |
coincide,
its important for you to understand what the tax effects of these allocations
will be. The tax laws spell out how these allocations should be made, but
there usually is room for some planning and maneuvering.
If you are interested in disposing
of your business with as little immediate tax liability as possible, some
creative alternatives may be open to you. You might want to merge your
business with another, or enter into one of a variety of tax-free reorganizations.
Each of these requires strict adherence to many technical rules, so you
will need professional help at each step of the way to ensure that you
achieve the desired tax result. You may only want to dispose of part of
your business, or split it up among current owners, in which case you might
be able to accomplish that with a spin off, a split off, or a split up
on a tax-free basis.
If you have a successful business,
but are having trouble finding a buyer, you may want to consider setting
up an employee stock ownership plan |
and
selling your companys stock to the plan. This can be done on a leveraged
basis and results in no current tax to you if you reinvest the proceeds
in other securities. It gives you the opportunity to diversify your company
stock holding without any tax cost until you sell the replacement securities.
As you can see, there are many options
to consider as well as many pitfalls to avoid when planning to sell your
business. Please call us if you would like to discuss your plans and goals
in more detail.
Tax
Law Changes for the Year 2000
The tax
law is in constant change these days. In 1999, Congress passed a tax bill
that gave $18.4 billion in additional tax breaks over the next five years,
while adding $2.6 billion in new tax revenues. Even more significant, however,
are the billions of dollars in tax provisions that continue to be phased-in
during 2000, as required by legislation passed (continued
on next page)
|
